Ask the Experts September 22, 2009

(b)lines Ask the Experts – Distributions for Retired Public Safety Officers

September 22, 2009 (PLANSPONSOR (b)lines) - Under Code section 402(l), a governmental 403(b) plan may directly pay up to $3,000 per year for health or long-term care insurance premiums for an eligible retired public safety officer, his or her spouse or dependents.

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Recently issued Notice 2009-68 (see Understanding Options ), which updates the model safe harbor notice for eligible rollover distributions, contains a paragraph addressing the Code section 402(l) rule. A plan provider asks: “Does this paragraph in Notice 2009-68 mean that payments that qualify under Code section 402(l) are subject to 20% mandatory withholding or any other type of withholding?”

Answer from David Levine, Groom Law Group, Chartered:

No, amounts directly paid for health or long-term insurance premiums are not subject to withholding. Further, pursuant to the 2009 Form 1099-R instructions, a plan should include any amounts directly paid for health or long-term care insurance premium for an eligible retired public safety officer in amounts reported in Box 2a of Form 1099-R. Participants can then take a deduction on their Form 1040 personal income tax returns (Page 24, 2008 Form 1040 instructions).

NOTE: This feature is to provide general information only, does not constitute legal advice, and cannot be used or substituted for legal or tax advice.